When you reach retirement, there are a number of ways you can use your pension fund, and other assets, to provide you with an ongoing income. The decision you make is extremely important and can have lasting implications for you and your family, so good financial advice is essential.
Current pension rules mean that many personal schemes are deemed to be outside of your estate for the purposes of inheritance tax. As a result, it is now more important than ever to have an effective strategy in place to draw down the income that you need in retirement from the most tax-efficient source.
If you are approaching retirement, one of our financial planners will work with you to identify and analyse your income requirements and various sources of income. We will put together an investment and income strategy that allows income to be drawn in the most tax-efficient way, taking account of your income, capital gains and inheritance-tax positions.
For most people, retirement is a largely unknown quantity. We will help give you peace of mind by building a fluid plan that we will review together and adjust as the years pass, allowing you to enjoy a happy and stress free retirement.
Options at retirement
Usually a personal pension fund has the option to take 25% of the fund as a tax-free lump sum with the remainder used to purchase income.
With a traditional annuity, you hand over the money in your pension pot to an insurance company in exchange for a guaranteed income for the rest of your life. There are various options available to purchase, including spousal benefit and index-linking.
It is possible to obtain underwritten annuities for individuals in ill-health. One common form of enhanced annuity, if you are a smoker, will allow you to obtain an annual income of up to 20% more.
As an alternative to a conventional annuity, you can remain invested in an unsecured pension, also known as drawdown.
It is now possible to draw any amount from your pension scheme, with 25% being available tax-free and anything else subject to tax at your marginal rate.
Phased income drawdown
This is an option best suited to you if you are under the age of 75 and do not require full access to your tax-free cash. It can be particularly tax-efficient in that income is made of both capital and tax-free cash.